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OFAC Issues New and Amended Insurance-Related Frequently Asked Questions

San Diego, Calif./Houston, Tex. (December 10, 2024) - On November 13, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended several Frequently Asked Questions (FAQs), including numbers 61-65, 68, 69, and 102-104. OFAC also published two new insurance-related FAQs, which are 1199 and 1200. Below please find a summary of these new and amended FAQs.

FAQ No. 61. OFAC clarified that its regulations preempt state insurance regulations, and in some cases, insurers must commit an ostensible violation of state insurance regulations to comply with OFAC regulations.

FAQ No. 62. OFAC clarified that insurance industry participants are responsible for compliance with OFAC sanctions throughout the lifecycle of their involvement with an insurance policy. OFAC added the caveat that unless authorized or exempt, a U.S. insurer is prohibited from issuing a policy to a blocked person. OFAC now provides a timeframe for reporting block persons (i.e., 10 business days). 

FAQ No. 63. OFAC no longer suggests that the first thing an insurance company should do if it discovers that a policyholder or a named beneficiary is added to OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) or located in a jurisdiction subject to sanctions is contact OFAC. It now suggests that the insurance company should block the policy or relevant portion of the policy, report such blocking to OFAC within 10 business days from the date the policy becomes blocked, place any future premium payments into a blocked interest-bearing account at a U.S. financial institution, and, if applicable, seek an OFAC-specific license to make any payments under the policy. If sanctions prohibit the provision of services to a particular jurisdiction, insurers should cease providing coverage to those located within the jurisdiction unless authorized by OFAC or otherwise exempt. OFAC now suggests that insurers may contact OFAC with specific questions related to the policy, but it is no longer a requirement.

FAQ No. 64. OFAC now clarifies that if an insurer has knowledge that a person covered under a group policy is blocked pursuant to OFAC sanctions, although the insurer’s coverage of that person is blocked, a claim may be paid with authorization from OFAC. OFAC now directs that any premium payments made by or on behalf of the blocked person should be blocked and placed in a blocked interest-bearing account at a U.S. financial institution. If the insurer does not know the names of those covered until a claim is filed, once a claim is filed by a blocked person, the insurer would be required to block that individual’s coverage and place any payments made by or on behalf of the blocked person in a blocked interest-bearing account at a U.S. financial institution. The requirement of placing the payments into interest-bearing accounts is new.

FAQ No. 65. OFAC made it clear that sanctions violations are subject to strict liability. Therefore, although there is not a magic number as to how frequently an insurer should screen its databases for OFAC compliance, routine screening improves an insurer’s ability to comply. OFAC suggests that sanctions compliance programs, including screening frequency, will vary depending on the size and nature of an insurer’s business and its relevant regulator.  OFAC states that in addition to screening all relevant policyholders, beneficiaries, and counterparties to an insurance policy upon issuance, insurers should also consider screening at policy renewal, policy amendment, claim submission, claim payment, updates by OFAC to its sanctions or sanctions lists, and at any other time when an insurer may be exposed to sanctions risk. Previously, OFAC stated that how frequently an insurer screened its database for OFAC compliance was “up to your firm and your regulator.” Now it is taking a much stricter approach and suggesting regular screening.

FAQ No. 68. If a policyholder becomes a SDN or blocked person after policy issuance, the insurer may notify the policyholder that the policy is now “blocked” without obtaining a specific license from OFAC.

FAQ No. 69. An insurer may instruct the policyholder that it must place any subsequent premium payments into a blocked account. OFAC now advises that the insurer may identify to the policyholder the corresponding sanctions program pursuant to which the insurer took action. Also, any individual or entity whose funds have been blocked may apply for the release of the funds via the License Application page on OFAC’s website.

FAQ No. 102. Through this FAQ, OFAC suggests that insurers can participate in worldwide insurance markets by drafting exclusions ensuring there is no coverage for risks that violate U.S. sanctions law. OFAC now suggests that the exact wording of such clauses may vary depending on the type of policy, but the legal effect of the clause should prevent the extension of a prohibited service to sanctioned persons or jurisdictions, or for prohibited activities. OFAC now warns that insurers should ensure such clauses do not create future economic benefit for a sanctioned person or jurisdiction by allowing for indemnification if or when relevant prohibitions no longer apply; there should be no coverage at the time of loss if, at that time, such coverage would have violated U.S. sanctions law. OFAC now directs insurers to contact it directly in the event of questions surrounding a loss.

FAQ No. 103. OFAC advises that in cases where an exclusionary clause is not commercially feasible, but the policy would involve coverage to a sanctioned person or jurisdiction, or prohibited activity, the insurer should apply to OFAC for a specific license prior to issuing the global insurance policy. OFAC’s revised FAQ now states that it will consider, along with other factors, the market position of the applicant in assessing whether to issue a license. OFAC now directs insurers to 31 CFR § 501.801 and its License Application page for further guidance.

FAQ No. 104. OFAC clarified that an insurer can offer global travel insurance and worldwide travel assistance without violating U.S. sanctions, provided that the provision of global travel insurance and travel assistance relate to travel that is exempt or authorized.

FAQ No. 1199. OFAC requires authorization before an insurance company can pay a claim under a policy issued to a blocked individual or entity, even if the payment is to an innocent third-party. OFAC explained that this is because the insurance policy itself is a blocked contract.

FAQ 1200. OFAC clarified that if a non-sanctioned person files a claim with their insurance company for a loss caused by a blocked person, such as a designated terrorist organization, the insurance company is permitted to pay the claim provided the payment is not prohibited by other OFAC sanctions regulations. 

Lewis Brisbois’s attorneys are actively engaged in the wide range of legal issues in this area and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editor of this alert, and visit our Ukraine Conflict, International Trade, Export, Import and Investment Controls & National Security Practice page for additional alerts in this area.

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